How the US Can Shape Its Manufacturing Destiny

Now that the US is poised to expand its high-tech manufacturing, we might want to ask a few questions. What kind of manufacturing structure do we want to build? Do our high-tech manufacturing moguls have a US manufacturing vision that will last for decades? And what will it take to develop a strategy that will cut costs and raise revenue effectively while expanding economic development?

As companies such as Apple Inc. (Nasdaq: AAPL), Foxconn Electronics Inc. , Intel Corp. (Nasdaq: INTC), General Electric Co. (NYSE: GE), and others continue forward with their plans to expand US manufacturing, it will be interesting to see where new plants are located and what factors will steer companies toward the locations they choose.

Naturally, companies will take into consideration everything from the cost of manufacturing to the availability of skills, much in the same way BMW did when it built a plant in Greenville-Spartanburg, S.C., after considering 250 sites worldwide.

In a 2007 study, a team lead by Michael Greenstone, professor of environmental economics at MIT, said BMW chose Greenville-Spartanburg because it possessed certain characteristics, including "low union density; a supply of qualified workers; numerous global firms in the area, including 58 German companies; high quality transportation infrastructure, including air, rail, highway, and port access; and access to key local services."

The study also said:

A second important factor in BMW's decision was the value of the subsidy it received. Presumably Greenville-Spartanburg was willing to provide BMW with $115 million in subsidies because it expected economic benefits from BMW's presence. According to local officials, the facility's ex ante expected five-year economic impact on the region was $2 billion. As a part of this $2 billion, the plant was expected to create 2,000 jobs directly and another 2,000 jobs indirectly. In principle, these 2,000 additional jobs could reflect the entry of new plants or the expansion of existing plants caused by agglomeration economies.

As the US wiggles its way out of an economic downturn, some lawmakers have scoffed at the idea of boosting federal infrastructure spending. Will federal, state, and local governments do enough to provide tax breaks, invest in infrastructure and education, and offer other incentives to attract high-tech manufacturing?

As we consider the future of high-tech manufacturing, Americans can look back at a lost decade in which skills, wages, and economic growth were stymied, partly because the high-tech industry outsourced consumer product assembly to Asia, Latin America, and other locations. In a Harvard Business Review article a few years ago, Professors Gary Pisano and Willy Shih wrote that America must revive its manufacturing capabilities to spur the economy out of its recession.

Rebuilding its wealth-generating machine -- that is, restoring the ability of enterprises to develop and manufacture high-technology products in America -- is the only way the country can hope to pay down its enormous deficits and maintain, let alone raise, its citizens' standard of living.

Another stark observation came recently from Apple CEO Tim Cook. He told NBC's Brian Williams last month that the lack of a highly skilled workforce has hurt the development of US manufacturing.

Honestly, it's not so much about price. It's about the skills, et cetera. Over time, there are skills that are associated with manufacturing that have left the US. Not necessarily people, but the education system stopped producing them.

Apple is preparing to invest $100 million in US facilities that will produce its Mac computers. The US will be depending on Cook and several other top executives to craft a manufacturing sector that supports and rejuvenates the US economy. Let's hope these leaders can learn from the past and make US high-tech manufacturing the envy of the world again.

Tim Cook is not the only one who is concerned that the US education system has stopped producing people with skills associated with manufacturing. With regard to the federal government, the Obama administration has programs in place targeted toward improving the performance of students in the areas of science, technology, engineering and math (STEM).

High-tech companies have an opportunity now to revive US high-tech manufacturing, while keeping their production costs relatively low. The next few years will give us an idea of how committed these companies are to developing manufacturing in this country. With regard to China, I think China will have a great deal of high-tech manufacturing for many years to come, but how much manufacturing of consumer electronics will be done in the US is an open question.

Great post, as usual. Data continues to support the cost-effectiveness of onshore manufacturing. The examples provided are also compelling. I hope companies will follow the leaders like they did last time, when the movement was toward China.

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